,Chapter 1: Introduction to Business Activities and Overview of Financial Statements
and the Reporting Process
TRUE/FALSE
1. The activities of a business include establishing goals and strategies, obtaining financing, making
investments and conducting operations.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
2. Goals are the end results toward which the firm directs its energies, and strategies are the
means for achieving those results.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
3. Each firm makes financing decisions about the proportion of funds to obtain from owners,
long-term creditors, and short-term creditors.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
4. A firm makes investments to obtain productive capacity to carry out its business activities.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
5. Patents, licenses, and other contractual rights are tangible, in the sense that the rights have a physical
existence.
ANS: F PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
6. Firms communicate the results of their business activities in the annual report to shareholders.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
7. Assets are economic resources with the potential to provide future economic benefits to
, a firm.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
8. Liabilities are creditors’ claims for funds, usually because they have provided funds, or
goods and services, to the firm.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
9. Retained earnings represent the net assets (total assets - total liabilities) a firm derives
from its earnings that exceed the dividends.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
10. The amounts of individual assets that make up total assets, represented by accounts receivable,
inventories, equipment, and other assets, reflect a firm’s financing decisions, each measured at the
balance sheet date.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
11. The mix of liabilities plus shareholders’ equity reflects a firm’s investing decisions, each measured at
the balance sheet date.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
12. Current liabilities represent obligations a firm expects to pay within one year.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
13. Current assets, typically held and used for several years, include land, buildings,
equipment, patents; and long-term investments in securities.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
, 14. Current liabilities and shareholders’ equity are sources of funds where the supplier of
funds does not expect to receive them all back within the next year.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
15. The current replacement cost of an asset is the amount a firm would have to pay to obtain another asset
with identical service potential; it is an entry value that reflects economic conditions at the
measurement date.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
16. The same asset can have different measurements for tax purposes, for financial reporting purposes, and
for internal managerial decision-making purposes.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
17. A natural business year ends when most activities in an operating cycle have been substantially
concluded.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
18. The managers of a business prepare financial statements to present meaningful information
about that business’s activities to external users.
ANS: T PTS: 1 DIF: 1 REF: p. 20 | p. 23
OBJ: LO: 1-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
19. The independent external auditors of a business prepare financial statements to present meaningful
information about that business’s activities to external users.
ANS: F PTS: 1 DIF: 1 REF: p. 20 | p. 23
OBJ: LO: 1-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
20. Management operates the productive capacity of the firm to generate earnings.
ANS: T PTS: 1 DIF: 1 REF: p. 20 | p. 23
OBJ: LO: 1-03 NAT: BUSPROG: Analytic
and the Reporting Process
TRUE/FALSE
1. The activities of a business include establishing goals and strategies, obtaining financing, making
investments and conducting operations.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
2. Goals are the end results toward which the firm directs its energies, and strategies are the
means for achieving those results.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
3. Each firm makes financing decisions about the proportion of funds to obtain from owners,
long-term creditors, and short-term creditors.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
4. A firm makes investments to obtain productive capacity to carry out its business activities.
ANS: T PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
5. Patents, licenses, and other contractual rights are tangible, in the sense that the rights have a physical
existence.
ANS: F PTS: 1 DIF: 1 REF: pp. 3-6
OBJ: LO: 1-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
6. Firms communicate the results of their business activities in the annual report to shareholders.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
7. Assets are economic resources with the potential to provide future economic benefits to
, a firm.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
8. Liabilities are creditors’ claims for funds, usually because they have provided funds, or
goods and services, to the firm.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
9. Retained earnings represent the net assets (total assets - total liabilities) a firm derives
from its earnings that exceed the dividends.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
10. The amounts of individual assets that make up total assets, represented by accounts receivable,
inventories, equipment, and other assets, reflect a firm’s financing decisions, each measured at the
balance sheet date.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
11. The mix of liabilities plus shareholders’ equity reflects a firm’s investing decisions, each measured at
the balance sheet date.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
12. Current liabilities represent obligations a firm expects to pay within one year.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
13. Current assets, typically held and used for several years, include land, buildings,
equipment, patents; and long-term investments in securities.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
, 14. Current liabilities and shareholders’ equity are sources of funds where the supplier of
funds does not expect to receive them all back within the next year.
ANS: F PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
15. The current replacement cost of an asset is the amount a firm would have to pay to obtain another asset
with identical service potential; it is an entry value that reflects economic conditions at the
measurement date.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
16. The same asset can have different measurements for tax purposes, for financial reporting purposes, and
for internal managerial decision-making purposes.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
17. A natural business year ends when most activities in an operating cycle have been substantially
concluded.
ANS: T PTS: 1 DIF: 1 REF: pp. 6-19
OBJ: LO: 1-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
18. The managers of a business prepare financial statements to present meaningful information
about that business’s activities to external users.
ANS: T PTS: 1 DIF: 1 REF: p. 20 | p. 23
OBJ: LO: 1-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
19. The independent external auditors of a business prepare financial statements to present meaningful
information about that business’s activities to external users.
ANS: F PTS: 1 DIF: 1 REF: p. 20 | p. 23
OBJ: LO: 1-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge
20. Management operates the productive capacity of the firm to generate earnings.
ANS: T PTS: 1 DIF: 1 REF: p. 20 | p. 23
OBJ: LO: 1-03 NAT: BUSPROG: Analytic
